Small Biz Failing, $150k+ in Unsecured Debt

[johnsmith11]

I made a large contribution in 2006 when my income was high but did not last year as I had low income getting my business prepared. I am eligible to contribute over $25k but obviously that would be asking for it. I'm thinking that I might move $5k over as it is significant but not in your face large. If they don't like it they can somehow take it back i guess but that wouldn't leave me much worse off than I am now.

[StartingOver08]

If you have been contributing to it regularly (every year) I think you have a good case for keeping it in the SEP/IRA. But run it by your attorney anyway

[johnsmith11]

You can not prepay your rent. This is a preference payment that can be avoided by the Trustee. To read a very good recent case look at this link: http://www.id.uscourts.gov/decisions...Coble.Memo.pdf

As to the SEP/IRA, many retirement funds are excluded from the BK estate; HOWEVER if you have a SEP than that may be an exception to the exclusion.

An exception to this rule is retirement plans that have only one participant, such as single employee corporate plans, and some other plans originating in self employment. These plans may be property of the estate. They may be vulnerable to creditors unless subject to an exemption. Get good professional advice if this describes a significant asset of yours

To see the entire article, go here: http://www.moranlaw.net/retirement.htm

Wow thanks for the link to the rent court case. That was very interesting to read. I would assume that paying your rent monthly wouldn't be a preferential payment (even though it would clearly exceed 600 over a few months) as you need a roof over your head, right?

I was nervous about my IRA but luckily the gov't passed a law in 05 i believe that makes all IRA's fall under the retirement plan exclusion. Now its just a matter of whether contributing to it now for 08 would be deemed some sort of bad transfer, I have to decide by Wednesday!

[StartingOver08]

You can not prepay your rent. This is a preference payment that can be avoided by the Trustee. To read a very good recent case look at this link: http://www.id.uscourts.gov/decisions...Coble.Memo.pdf

As to the SEP/IRA, many retirement funds are excluded from the BK estate; HOWEVER if you have a SEP than that may be an exception to the exclusion.

An exception to this rule is retirement plans that have only one participant, such as single employee corporate plans, and some other plans originating in self employment. These plans may be property of the estate. They may be vulnerable to creditors unless subject to an exemption. Get good professional advice if this describes a significant asset of yours

To see the entire article, go here: http://www.moranlaw.net/retirement.htm

[johnsmith11]

Also I'm wondering if/how much I can prepay in rent? Can I have a contract that says I have to pay up front? Would that pass mustard as a living necessity or would they say it was some sort of preferential payment?

[johnsmith11]

That sounds like a reasonable course of action, we business owners are inherently optimists - otherwise we would not ever want to own a business!

You have to look at the probability of actually being able to get out of your problem within a year without the assistance of the BK court. For me, I waited probably a year too late. Many people on this board do the same - don't go through all of your resources and then file. It is much more difficult to recover then.

I believe through unscientific means (SWAG method), that when you have a business and large debt and over median income the Trustee's get very interested in your case. I had the UST interested in mine, but was able to show with all the paperwork that I was truly CH 7 material. Had to document everything going back years. You may need to do that too - it is a strategy that seems to work. Ask your attorney.

When did you last pay your friends? Yes, they are considered insiders by the courts. You may want to seriously put a year between the last payment and the filing date - it will make your filing that much easier. As you can see, only you know the answer to these questions because the answers conflict. At least you are here to plan your BK to minimize any difficulty when you file.

Note: SWAG method = scientific wild a** guess!

Trying to avoid to many specifics (yep I'm a little paranoid of a creditor coming on here) but I'm an investor and I made 500% in 5 months last year. Unfortunately I lost everything this year (changed strategy, used way too much leverage based on confidence in prior results, so stupid) and I'm stuck with deciding to borrow and give it another shot (old strategy obviously) or just give in and go back to the working world with family debts. The reality is that if I did borrow additional funds I'd owe over $200k with ok interest rates (assume 10% on average) which would make it pretty damn tough to pay enough over min payments to make it work out.

I guess luckily I have not paid my friends back anything yet, it was going to be a lump sum payment plus interest at the end of the loan term.

As for the Trustee's interest I have a business and a large debt but using the 6mo BK calculation my income is a huge loss per month so hopefully that will take me of the radar screen.

I'm also wondering about contributing to my SEP-IRA. I had significant income in 08 and am thinking I could say that I contributed to reduce my tax burden and was trying to keep my business afloat. What is the typical look back on retirement acct contributions? How far can they look back if they want to dig?

[StartingOver08]

That sounds like a reasonable course of action, we business owners are inherently optimists - otherwise we would not ever want to own a business!

You have to look at the probability of actually being able to get out of your problem within a year without the assistance of the BK court. For me, I waited probably a year too late. Many people on this board do the same - don't go through all of your resources and then file. It is much more difficult to recover then.

I believe through unscientific means (SWAG method), that when you have a business and large debt and over median income the Trustee's get very interested in your case. I had the UST interested in mine, but was able to show with all the paperwork that I was truly CH 7 material. Had to document everything going back years. You may need to do that too - it is a strategy that seems to work. Ask your attorney.

When did you last pay your friends? Yes, they are considered insiders by the courts. You may want to seriously put a year between the last payment and the filing date - it will make your filing that much easier. As you can see, only you know the answer to these questions because the answers conflict. At least you are here to plan your BK to minimize any difficulty when you file.

Note: SWAG method = scientific wild a** guess!

[johnsmith11]

Regarding paying your friends - they are considered insiders and the lookback period is ONE YEAR. Do not pay friends leading up to your BK and the Trustee will go after those funds to have the money paid into the BK estate.

Regarding the IRS, do not make any BT's now. Just make payment arrangements with the IRS, they are not so bad to work with. BTW, if you have excess funds in your account (over the exemption amounts) the two best payments to make are 1) to your attorney to file and 2) to the IRS. The Trustee will not go after the IRS funds as they are considered priority debts.

The Carmax option apparently is accepted in some districts and not in others. But an independent vehicle appraisal is accepted. As to the sale/leaseback of your vehicle, be careful here. If the current value exceeds the exemptions and you encumber the vehicle to get it in your exemption amount - it may be considered a preferencial lien transfer and the Trustee may move to avoid the lien. Look here for info: http://www.lawdog.com/bkrcy/bkcp7f.htm

Yeah I was hoping the friends would only be a 90 day lookback (as it seems the law is written) but it seems like the way the court treats it is friends=insiders.

I'm working with an IRS assistance firm who is negotiating an official number from them. That will tell me whether I have excess funds to work with or not after paying the IRS.

That's great info on the lien transfer, I will not be doing this so as to avoid muddying the water.

What it really comes down to for me is the decision to borrow from family or borrow more from unsecured lenders and try to a)get the biz cash flowing again and/or b) hold out for at least a year so I could file CH7 with less concern about them going after friends for the payments. I want to do the latter and fix this by myself but I'm afraid they would look back and say I was insolvent at the time (present) and I think the hole is too deep and I'd be better off just attacking the problem now rather than complicating it and risking paying my friends or the gov't twice.

[StartingOver08]

Regarding paying your friends - they are considered insiders and the lookback period is ONE YEAR. Do not pay friends leading up to your BK and the Trustee will go after those funds to have the money paid into the BK estate.

Regarding the IRS, do not make any BT's now. Just make payment arrangements with the IRS, they are not so bad to work with. BTW, if you have excess funds in your account (over the exemption amounts) the two best payments to make are 1) to your attorney to file and 2) to the IRS. The Trustee will not go after the IRS funds as they are considered priority debts.

The Carmax option apparently is accepted in some districts and not in others. But an independent vehicle appraisal is accepted. As to the sale/leaseback of your vehicle, be careful here. If the current value exceeds the exemptions and you encumber the vehicle to get it in your exemption amount - it may be considered a preferencial lien transfer and the Trustee may move to avoid the lien. Look here for info: http://www.lawdog.com/bkrcy/bkcp7f.htm

[DebtEnder]

It does make sense so its not tough So based on what you see you think that paying the IRS with my remaining cash would work since I wouldn't be incurring additional debt? I guess it comes down to whether a trustee could/would go after the IRS as a preferential to try and pay unsecured credit cards. I would think they wouldn't but if anyone has a feel for this additional opinions are certainly welcome.

So long as the pref payment is not made to family or in your case friends you have relationships beyond creditor/debtor then it is of little concern of yours. All it means is the trustee may want to collect that payment back to be redistributed to all creditors. This is between the creditor, the IRS here, and the the trustee. Two things when dealing with the IRS that make a trustee unlikely to bother. One it is the IRS good luck getting money from them and two the debt would not be discharged as it's less then 3 years old (tax debt over 3 years old since return CAN be discharged in ch7) TBH this would not concern the trustee much but ya get the point.

Regarding the car easiest way I could say is if there is a Carmax near you. if so go there they will give you a written estimate to buy the car from you at no cost. Trustee may want a private party value, depends on the trustee but this would be a good place to start. ANY sort of little fender bender, ding, corrosive bird poop mark, etc should be made painfully aware to the guy doing the appraisal.

And to the prepay bit once you confirm that you should be able to keep the car then yes prepay car, health insurance, stock up on food, medicine etc. Paying student loans goes back to the IRS bit so pay them as you can't reasonably get rid of them, but I would not make HUGE payments to them as in my case the trustee asked if in 90 days I paid any non-secured creditor more then $1k. If your student loans min payments would be more then 1k in 90 days don't worry about it I wouldn't. Other people may be able to chime in with other worthwhile stocking options. I unfortunately did not really get to pre-plan my bankruptcy Sounds like you do

And welcome to the forum insert normal this is not legal advice get a lawyer etc etc

[johnsmith11]

If you can pay off the IRS without incurring new debt to do so ignoring the loan from friends atm then that sounds like a option to really consider.

What happens after your are discharged and closed is between you and any new creditors (family in your case). I would file BK to EVERYONE but in essence reaffirm your debt with your friends loans. I have some rather bad experience with loans from family so take this with a grain of salt

If you do trust them, and they trust you then have your family pay off your friend loans and once BK is done sign an agreement with your family to repay what they paid on your behalf if you want something in writing. Avoid any sort of paper or money trail from yourself to the friends before or during BK as this could be construed and insider pref payment, which is bad. Also any sort of new credit right before or DURING bk is well uhh bad

I hope this makes sense, if not well tough

It does make sense so its not tough So based on what you see you think that paying the IRS with my remaining cash would work since I wouldn't be incurring additional debt? I guess it comes down to whether a trustee could/would go after the IRS as a preferential to try and pay unsecured credit cards. I would think they wouldn't but if anyone has a feel for this additional opinions are certainly welcome.

I'm now getting to the car issue. I am currently out of state and will be for the next 3 weeks so having a consult with a bk attorney is going to be a little tough. I could always do a phone call but I want to meet in person to get a real read for each attorney. I am going to try to go the independent appraisal route as the KBB retail numbers are just ridiculous in this economy. I know Ibroke was talking about this, has anyone had luck with it?

Also of some significant importance is what bills I can prepay, for instance: rent, car insurance, health insurance, utilities/phone, student loans? Are there any major ones I'm not thinking of that I should either use or ask a BK attorney about?

Ok its late and I'm writing too much again so I'll cut it off here. Thanks to everyone, you're all making my life just that little bit easier.

[DebtEnder]

If you can pay off the IRS without incurring new debt to do so ignoring the loan from friends atm then that sounds like a option to really consider.

What happens after your are discharged and closed is between you and any new creditors (family in your case). I would file BK to EVERYONE but in essence reaffirm your debt with your friends loans. I have some rather bad experience with loans from family so take this with a grain of salt

If you do trust them, and they trust you then have your family pay off your friend loans and once BK is done sign an agreement with your family to repay what they paid on your behalf if you want something in writing. Avoid any sort of paper or money trail from yourself to the friends before or during BK as this could be construed and insider pref payment, which is bad. Also any sort of new credit right before or DURING bk is well uhh bad

I hope this makes sense, if not well tough

[johnsmith11]

Yeah sorry about the ridiculously long initial post, I wrote that at 4am. It's painful to think of coming out of ch7 with a large debt still but at least I will be covering my friends and only owing people who really care about me.

[ready2puke]

Oh I see sorry I must have missed it was to going your friends. You post is so long I get lost in all the words. I understand what your saying.. Its different BKing on cc's but personal friends would stink.

[johnsmith11]

To the OP why would have have someone you know pay your debt and then go BK..? Why not just get all the debt BK'd. Your friend or family member would be SOL and you would have to pay them back. If your going to do it just do it with all your debt. I know it feels uncomfortable, I felt the same way. That too shall pass....

I know that sounds like the proper thing to do but I would rather owe my family. I borrowed from two people who now after losing their jobs can't afford to pay their bills without this money. I will not allow my bk to cause two additional bk's to people I care for and respect. Paying back the debt to family will be a good way to get back on track and would make me feel much better about the entire situation. I guess this is a to each his own situation.